Moneyball without the ball

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If you recall, I started my endeavor into the domestic oils a month and a half ago, when I purchased Lightstream Energy and Penn West. That didn’t last long; I quickly jettisoned those names after doing more research, deciding that neither was particularly cheap, and recognizing that there were other, smaller names that were more attractive.

The first names I went with was Novus Energy and that was followed by Longview Exploration, and Rock Energy. Of the three I felt the most comfortable with Novus and made that position the largest. This week, an article came out in a Hong Kong paper (I believe if was the Economic Times) that Novus was about to be taken out by a Chinese company called Yanchang Petroleum (you can access the translated article here, and one version of the original here). The news was clearly leaked, Novus wasn’t ready for it to be released, and the stock has remained halted for the last 3 days.

If the article is to be believed, the value of the transaction is going to be a windfall for shareholders. According to the article the purchase price is $500 million, which after subtracting debt and accounting for stock options would still mean over $2 per share. Given that Novus is an 8% position for me, this would be a huge gain. Read more

Last weekend I wrote a nice little piece summarizing the investment thesis for Axia NetMedia (AXX.to). Would have made a great post, was concise, clear, short. Perfect… except that the company came out and sold the asset that I had centered the entire post on.

So the post lost some of its relevance. Still, it presents a good starting point with which to discuss the post-OpenNet version of Axia, so I have included the main body of it below, followed by a discussion of what’s next for Axia.

A big thanks to @17thStCap for this idea. I actually knew of Axia from years ago, my hometown is a recipient of the Alberta Supernet, but I hadn’t looked closely at the company until @17thStCap mentioned it.

Axia trades at an enterprise value of $95 million (Note: actually $70 million post-OpenNet transaction), and yet I think that the assets it owns that provide fibre broadband transport services in France Alberta and Singapore, are worth quite a bit more than that.

Let’s focus on Singapore for the moment, as I believe it is the immediate catalyst. The company owns 30% of a partnership called OpenNet (look here for an overview of OpenNet), which provides fibre to 1.1 million residential and 26,000 commercial premises as of the end of the June quarter. OpenNet grew its top line and EBITDA by just slightly less than 100% in the last year. In the month of June alone, fibre broadband subscribers increased 31,000 to 380,000. Read more

Portfolio Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Shake-up

In a previous post about Walker & Dunlop I described the consequence of being on vacation while the company announced poor results, which was that I was not able to take advantage of a clear selling situation. The same was the case for Dex Media.

In the past I used the term “good enough investing” to describe what I’m trying to do with my portfolio. I work a full time job, have a life and need a break now and then, and all that means I just can’t be on top of everything. I try my best but I have found it necessary to employ techniques to mitigate this. In particular, I sell stocks when things aren’t working out.

While I’ve had my share of winners over the past month and a half (AIQ, NVS, NCT, NRF, IQNT to name a few), I’ve also had my share of losers (NKO, EXE, VTNC, and the above mentioned duo) with the result being that my portfolio has done not much of anything. While I remain hopeful that both Niko Resources and Extendicare eventually pan out, the fact is that thus far they haven’t. Read more

With the earnings plate of stocks I own full to the brim, it was a bit of a tough week to be away. The consequence was that I was not able to review many of the reports and conference calls until this weekend, and in a few cases the stocks suffered significant drops in the interim.

This was the case for Walker & Dunlop, the commercial mortgage originator that I’ve owned for the last four months. In my original and follow up post on the company I described the investment thesis as being based in part on the continuation of their history of growth as a multi-family lender, and in part based on their relatively recent relationship with Fortress Investment Group, who I expected to open a few new doors for the company.

One door was opened in the first quarter with the initiation of an $850 million bridge lending program aimed at borrowers who would eventually qualify for Fannie, Freddie, CMBS or HUD channels. This is a solid step for the company as it opens up another destination for its originations, but at 8% of loan volumes its not a game changer. Read more

I’ve had a position in Yellow Media (Y.to), for a number of months, but until this week I had not dived into its American counterpart Dex Media (DXM). The reason was timing; I didn’t get the chance to look seriously at the company until the middle of April and shortly after I looked Kyle Bass recommended the stock at Ira Sohn, the stock price took off, and I was reluctant to chase it.

I’ve waited patiently since then thinking that the stock would come down once the shine wore off. This week I was rewarded and able to pull the trigger in the $14’s.

Before I go any further on this one let me just give a hat tip to Glen Bradford for all the work that he has done. Glen has discussed Dex Media and its predecessor companies Dex One and SuperMedia in detail on his website and on Seeking Alpha, and much of my own research started by reading his work.

The story at Dex Media is, of course, not unlike Yellow Media, but its also quite similar to YRC Worldwide, and fits in with my big idea for the year of investing in leveraged companies while the sun still shines. To illustrate the comparison to YRC Worldwide, when I bought the stock it was a $50 million dollar equity with over $1.3 billion in debt. You had a tiny sliver of equity that stood to act in a highly leveraged way if things played out right. Same thing with Dex Media. The equity currently sits at a little over $150 million. The company has debt of over $3 billion. Read more

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